Hybrid Annuity based PPP model has been adopted for the first time in the country in sewage management sector. Such a model has earlier been adopted successfully in highway sector only.
About Engineering, Procurement and Construction (EPC) and Build, Operate and Transfer (BOT):
• Under the EPC model, NHAI pays private players to lay roads. The private player has no role in the road’s ownership, toll collection or maintenance (it is taken care of by the government).
• Under the BOT model though, private players have an active role — they build, operate and maintain the road for a specified number of years — say 10-15 years — before transferring the asset back to the government. the private player arranged all the finances for the project, while collecting toll revenue or annuity fee from the Government, as agreed (BOT-Annuity).
• HAM is a good trade-off, spreading the risk between developers and the Government. It combines EPC (40%) and BOT-Annuity (60%).
• Here, the government pitches in to finance 40 per cent of the project cost (EPC component) — a sort of viability-gap funding. This helps cut the overall debt and improves project returns.
• The annuity payment structure means that the developers aren’t taking ‘traffic risk’.
• From the Government’s perspective, it gets an opportunity to flag off road projects by investing a portion of the project cost. While it does take the traffic risk, it also earns better social returns by way of access and convenience to daily commuters.
Advantage of HAM is that it gives enough liquidity to the developer and the financial risk is shared by the government. While the private partner continues to bear the construction and maintenance risks as in the case of BOT (toll) model, he is required only to partly bear the financing risk.
Government’s policy is that the HAM will be used in stalled projects where other models are not applicable.